UPDATE 4-Sears to sell down Canada stake, turns to CEO again for cash

Oct 2 (Reuters) - Sears Holdings Corp is turning to its chief executive for cash for the second time in three weeks in a sign that its efforts to sell off assets are coming up short.

The retailer announced Thursday that it would raise up to $380 million by lowering its stake in Sears Canada to 12 percent from 51 percent through a rights offering. It said Chief Executive Eddie Lampert and his hedge fund, which together own 48.5 percent of Sears Holdings, would buy about half of the offering.

The move comes after a year-long attempt to find an outside buyer for the company’s holdings of Sears Canada. The $380 million target is about half of what the company had previously indicated its stake was worth.

The rights offering indicates that Sears may be overestimating the value of its assets, including its vast property holdings, said Brian Sozzi, head of Belus Capital Advisors and a bear on Sears stock. “There just isn’t significant demand for what they are trying to unload on the market,” he said.

The offering also highlights just how dependent Sears has become on Lampert for liquidity. Thursday’s announcement comes on the heels of a $400 million loan last month from Lampert’s hedge fund, ESL Investments. Sears said those funds would be used to get it through the cash-intensive build-up to the year-end shopping season.

The company on Thursday again cited the holiday season in how it would use cash from the rights offering. Chief Financial Officer Rob Schriesheim, in a statement, also said the offering would bring to $1.445 billion the total amount of liquidity raised this year.

Sears has been closing stores, slashing inventory and selling off assets to generate cash after a decade of falling sales and dwindling margins. It has booked losses for nine straight quarters.

Sears said it was aiming to sell 40 million shares of Sears Canada in the offering. It expects to get $168 million after Lampert and his fund exercise their rights in mid-to-late October. Fairholme Capital Management, the No. 2 Sears shareholder, has indicated that some of its clients also plan to subscribe, the company said.

Fairholme, which had decided not to participate in the loan extended last month by Lampert’s hedge fund, did not immediately respond to a request for comment.

The $380 million funding target assumes that other shareholders will subscribe to the offering. Sears Canada, which has been losing market share and has posted losses in nine of the last 14 quarters, said last week that its CEO would resign after just a year at the helm.

Shareholders of Sears Holdings will have the right to buy one share of Sears Canada for each share held, at a price of C$10.60 per share. Sears Canada’s shares were down 1 percent at C$11 in trading on the Toronto Stock Exchange on Thursday.

Sears Holdings rose 6.7 percent to $26.86 on the Nasdaq, reflecting an easing of investor worries over the company’s cash cushion going into holiday shopping season. The stock had lost nearly a quarter of its value after the announcement of the $400 million loan on Sept. 15. (Additional reporting by Ashutosh Pandey in Bangalore; Editing by Kirti Pandey, Jilian Mincer, Leslie Adler and Cynthia Osterman)